Sirius XM's Mel Karmazin: 'I'm One of the Most Underpaid Executives in the History of Executive Payment'

Jeff Bercovici
,
Forbes Staff
I cover technology with an emphasis on social and digital media.

Mel Karmazin. Credit: Dieter Braun/FORBES

This story appears in the 4/23/12 issue of FORBES.

Mel Karmazin doesn’t do understatement. Perched at the head of a conference table in Sirius XM Radio’s glassy Manhattan headquarters, sporting a red power tie and a sepia perma-tan that offsets his snowy hair, Karmazin considers, just for a moment, the question of whether the satellite broadcasting giant and its shareholders have been overly generous with their CEO ­during his seven years on the job. “I think I’m one of the most underpaid executives in the history of executive payment,” he concludes.

Huh? Karmazin has earned more than $37 million since he took the job in November 2004 and stands to clear another $125 million or so next month with a planned exercise of stock ­options. Meanwhile, the stock has gone from about $9 shortly after he took over, before its merger with XM, to its recent hovering in the low $2 range. His disastrous six-year per­for­mance locks Karmazin in the basement of our annual bang-for-the-buck CEO rankings at number 197 out of 206. (The full list will be published April 4.)

But Karmazin is above all else a consummate salesman, one who famously sold his first radio ads at age 17. He honed his skills during the 15 years he ran Infinity Broadcasting and put them to the test as COO of Viacom, where he drew the unenviable duty of trying to sell boss Sumner Redstone’s reverse merger to Wall Street.

When it comes to defending his record at Sirius XM, he’s got plenty of numbers at his disposal. Sirius had 660,000 subscribers when Karmazin signed on; today it has 22 million. Fewer than one in five new cars came equipped with a satellite radio then; now two out of three do. Sirius was bleeding at the rate of $670 million a year; this year it expects to generate free cash flow of $700 million and is closing in on $1 billion in Ebitda. Its annual revenues have zoomed from $67 million to $3 billion.

“When I joined, the revenue was about the size of a New York radio station,” he says. “We are today the largest radio company in the world.”

But one number is harder to outrun: 6 cents. That’s how low the price of a Sirius XM share fell in early 2009, when it appeared all but certain the company would be dragged into bankruptcy by the weight of its $3.3 billion in debt, making it easy prey for EchoStar, which bought up much of that debt in anticipation of a takeover.

Bad timing played a huge part. In the 17 months it took to persuade the FCC and the Justice Department that the Sirius-XM merger wouldn’t create an illegal monopoly, the economy went from humming to sputtering, and car sales—the main source of new subscribers—nose-dived. Then, in the weeks following government approval of the merger in July 2008, the global credit markets seized up.

Karmazin was able to avoid declaring bankruptcy with an assist from Liberty Media’s John Malone, who stepped up with a $530 million loan in exchange for a whopping 40% stake in the company. The deal came with handcuffs preventing Liberty from seizing full control, but those provisions recently expired, leaving Malone and Karmazin in a public tug-of-war for the company.

Malone hasn’t said what his intentions are and declined to be interviewed. ­Karmazin also declines to comment directly on the tussle, but defends getting into bed with Liberty in the first place, however heavy the price. “Some people would say a mistake I made was not filing for Chapter 11,” he says. “I believe our shareholders would’ve been screwed, our debtholders would’ve been screwed, and I can’t live that way.

In fact, he casts the episode as something of a signal achievement. “We ­managed to avoid bankruptcy, something that General Motors didn’t and Chrysler didn’t and Reader’s Digest didn’t and Six Flags didn’t,” he says. “We provided our incumbent shareholders with eight and a half billion dollars in value that could have been wiped out.”